Hapoalim and DOJ Deferred Prosecution Agreement

Bank Hapoalim Succumbs to $874 Million Dollar DOJ Penalty: When keeping it real goes wrong, right? The Bank of Hapoalim was one of the last holdouts in the attempt to conceal U.S. Taxpayeroffshore accounts. And, with the IRS taking a highly aggressive position on all matters involving offshore account compliance, it was only a matter of time before the DOJ got wind.

Hapoalim Deferred Prosecution Agreement

Key paragraphs from released version of the deferred prosecution agreement, between the DOJ and Bank of Hapoalim:

“BHBM waives indictment and consents to the filing of a one-count Information (the “Information”) in the United States District Court for the Southern District of New York (the “Court”), charging BHBM with conspiring with others, including U.S. taxpayers, in violation of Title 18, United States Code, Section 371, (1) to defraud the United States and an agency thereof, to wit, the United States Internal Revenue Service (the “IRS”); (2) to file false federal income tax returns in violation of Title 26, United States Code, Section 7206(1); and (3) to evade federal income taxes in violation of Title 26, United States Code, Section 7201, for the period from 2002 to 2014.

In 2011, the Department requested certain statistical data from BHBM’s wholly owned Swiss subsidiary Hapoalim (Switzerland) Ltd. (“BHS”) through the Swiss authorities, and advised that the Department had commenced a criminal investigation of the Bank for assisting U.S. taxpayers in evading income taxes. The Bank, which believed the focus of the investigation was on BHS, responded to the requests for statistical data regarding BHS, but the Bank did not conduct an internal investigation of its U.S. accounts at that time.

In addition, the Bank provided unreliable data to the Department regarding, among other things, the identification of U.S. related accounts at BHS, and did not engage an external accounting firm for the purpose of assisting in providing data to the Department until May 2017. Thereafter, the Department required the appointment of an independent examiner, whose work began in early 2017. As a result of the Bank’s delayed cooperation, the Department’s efforts to timely resolve the investigation of the Bank were hindered, and the Department’s efforts to prosecute certain potentially culpable individuals were thwarted.”

DOJ Press Release

As provided by the recent DOJ Release:

Jeffrey A. Rosen, the Deputy Attorney General of the United States, Richard E. Zuckerman, the Principal Deputy Assistant Attorney General of the Justice Department’s Tax Division, Geoffrey S. Berman, the United States Attorney for the Southern District of New York, and Don Fort, the Chief of the Internal Revenue Service, Criminal Investigation (IRS-CI), announced today the guilty plea of Bank Hapoalim (Switzerland) Ltd. and filing of criminal charges against Bank Hapoalim B.M. for conspiring with U.S. taxpayers and others to hide more than $7.6 billion in more than 5,500 secret Swiss and Israeli bank accounts and the income generated in these accounts from the Internal Revenue Service (the IRS). BHS’s Chief Executive Officer appeared on behalf of the bank to enter the guilty plea before U.S. District Judge Mary Kay Vyskocil.

As part of today’s resolutions, along with resolutions entered into with state and federal partners, Bank Hapoalim B.M. (BHBM), Israel’s largest bank, and Bank Hapoalim (Switzerland) Ltd. (BHS), its Swiss subsidiary, agreed to pay approximately $874.27 million to the U.S. Treasury, the Federal Reserve, and the New York State Department of Financial Services. Today’s resolution is the second-largest recovery by the Department of Justice in connection with its investigations since 2008 into facilitation of offshore U.S. tax evasion by foreign banks.

“Today’s resolutions and payment of $874 million make clear that tax evasion cannot be taken lightly,” said Deputy Attorney General Jeffrey A. Rosen. “A fair tax system requires even-handed compliance, and honest conduct by all participants in the system.”

“The Department of Justice continues to aggressively prosecute banks and other financial institutions that help U.S. taxpayers conceal their income and assets in offshore bank accounts,” said Principal Deputy Assistant Attorney General Richard E. Zuckerman. “Today, Bank Hapoalim is being held accountable for its conduct – it has admitted to its crimes and will surrender all fees it earned, repay the United States for lost tax revenue, and pay a substantial fine.”

“Israel’s largest bank, Bank Hapoalim, and its Swiss subsidiary have admitted not only failing to prevent but actively assisting U.S. customers to set up secret accounts, to shelter assets and income, and to evade taxes,” said U.S. Attorney Geoffrey S. Berman of the Southern District of New York. “The combined payment approaching $1 billion reflects the magnitude of the tax evasion by the Bank’s U.S. customers, the size of the fees the Bank collected to provide this illegal service, and the gravity of the illegal conduct.”

“There is no excuse for a foreign financial institution to unlawfully assist wealthy Americans in flouting their responsibilities to pay their taxes,” said IRS Criminal Investigation Chief Don Fort. “With today’s guilty plea, Bank Hapoalim is taking responsibility for their role in deliberately breaking the law and undermining the integrity of this nation’s tax system. Offshore tax evasion is a top priority for IRS Criminal Investigation and we are wholeheartedly committed to bringing offenders to justice. Today’s resolution serves as proof that financial institutions engaging in tax fraud face dire criminal and financial consequences for their behavior.”

“The vast majority of New Yorkers follow the rules and pay their taxes, thereby contributing their fair share towards critical state and federal government operations and public services,” said Superintendent Linda A. Lacewell of New York State Department of Financial Services. “There are some, however, who went to great lengths to avoid paying their share, and Bank Hapoalim offered a whole array of services to U.S. citizens, including New Yorkers, that knowingly facilitated their tax evasion. DFS will not tolerate such behavior from banks that operate in the State of New York. DFS thanks our federal partners at the U.S. Department of Justice, U.S. Department of the Treasury, and the Federal Reserve Board for their assistance and coordination during this investigation.”

Today’s resolutions include agreements with BHBM and BHS (collectively, the “Bank”) under which the Bank agreed to accept responsibility for its conduct by stipulating to the accuracy of extensive Statements of Facts. BHBM further agreed to refrain from all future criminal conduct, implement remedial measures, and cooperate fully with further investigations into hidden bank accounts. Assuming BHBM’s continued compliance with its agreement, the Government has agreed to defer prosecution of BHBM for a period of three years, after which time the Government will seek to dismiss the charge against BHBM.”

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